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Want to Be Your Own Boss? It Stinks – Here’s Why

by Darwin on August 30, 2010

Everyone’s always talking about how they want to quit the rat race and how great it would be to own their own business – Be Your Own Boss. It sounds great, right? Rolling out of bed whenever you want, working in your pajamas, making tons of money from home? Well, unless you’re an A-List Blogger, which is near impossible due to the Economics of Blogging, you, as a small business owner are likely to be in for an unpleasant surprise.

If you can even make enough money to support yourself with a small business and replace the old salary and benefits your had from “the man” that you’re trying to distance yourself from in your old corporate life, here are some true-life examples from my friends and family that put small business ownership into perspective:

Story #1 – The Car Rental Agency

We just vacationed with some relatives who, after decades of building up their business as a franchise owner for a major car rental outfit, finally had a buyer for their business. They’d been wanting to get out and retire for years, but due to the wretched economy, they just couldn’t find a buyer for the business at any price. In fact, last year, they almost considered just throwing in the towel and walking away with nothing but their savings. Well, they were persistent and continued to run the business until they finally found a buyer this year – another franchise owner. As luck would have it, the closing was scheduled for the same week we were scheduled to vacation together and since we couldn’t change our plans, they figured they’d just run back to town for the closing for a day and then back to vacation. Well, that’s not how it went.

At the last minute, even though all the terms and conditions had been agreed to in advance, the slimeball who was supposed to buy the business tried to pull a fast one and change the price of the deal. He changed around all kinds of other things, threatened them, treated their current employees like crap, never told them where they stood with regards to employment with him as the new owner, etc. This ordeal was so stressful and problematic that they basically had to skip the vacation entirely and only get one day out of it while the dealt with this nonsense the whole week until the deal was finally closed. Now, you might be thinking, “Ah, that’s a one time event, they were selling the business”. Well, no, this is normal over the decades they’d been running the business.

As owners of the franchise, the buck stops with them. They had to deal with unruly customers, claims of discrimination when car rentals were declined, employees not showing up for work, cars being stolen/destroyed, lying customers, lying employees, and too many headaches to list here. Since it’s a business, they were basically either on the premises or on the phone all day, all night, weekends included dealing with problems for years.And They Weren’t Getting Rich! Due to the advent of the internet, competitive bidding, algorithms, and a new type of consumer with no loyalty whatsoever that will go to the rental agency down the street for a dime in savings, the margins on the business have dropped substantially. They had to constantly deal with some guy saying, “Yeah, I was going to use you but I can get a car for 7 dollars cheaper at the other place”, etc. to the point that it was really becoming a race to the bottom. Even with volume, the margins were shrinking, and so was their income.

Upon selling, at one point, their sons asked if they could buy the business from them. After all, the kids had worked in the place for years as teens and in their early 20s and they knew the business pretty well. The answer was No – They wouldn’t wish this life on anyone, especially their own children.

Story #2 – The Tree Service

Growing up, my brother wasn’t the college/white collar type. He had bounced from job to job out of highschool until he landed at a tree service. Over the span of a few years, he had learned enough about climbing, equipment, pricing and how the business worked that he started his own tree service company and eventually hired up a decent sized staff and acquired a fair amount of heavy equipment. For the uninitiated, this entails everything from trimming and cutting down some small trees to emergency jobs when massive trees fall on houses after a storm and giant lot clearing jobs for developers. There’s a lot involved, as I learned when I worked for my brother one summer during my college years.

While he was his own boss and his business was growing, he didn’t exactly seem to be living the dream. Here was his typical week: 6 days a week of 8-10 hour days on jobs, 2-3 hours several days a week doing estimates, several hours a week dealing with customers and trying to collect on prior jobs, hours per week having his equipment serviced, hours per week disposing of logs, working out deals with other subcontractors and mills, and all kinds of other things. He tried to take Sundays off but that rarely worked out. All told, he was probably putting in 80-100 hour weeks with about half of that being hard labor on 100+ degree days. Then, during the winter, the money dried up, so he’d use his trucks to plow, and that work was sporadic – totally dependent on the snow, and usually starting at 4AM since people expect their driveways to be clear when they wake up.

Now, along the way, he’d often have to deal with customers that were condescending pricks, employees that were cutting corners, wanted more money, breaking his equipment, and in one case, one of his guys was even caught taking his equipment from the yard on Sundays to do his own jobs on the side! Because many of these jobs were paying a thousand dollars or more for a day’s work, I’d hear his employees grumbling about how they should get more money and how he was getting rich off them, etc. What they failed to take into account of course were the 6-figure payments on the equipment, expensive liability insurance, and everything else that goes along with running such a business.

And He wasn’t Getting Rich! When he seemed to be getting ahead, he’d break an axle on a truck or the chipper would need a major repair or the yard housing his equipment would get flooded or a major customer would decide not to pay him. It was always something and he’s definitely not rich. He’s getting by, but if all that leadership, effort and time were poured into a typical corporate career over 15 years, I wonder where he’d be now.

Small Biz Reality

In closing, you’ve got to be realistic about things like how many hours you want to dedicate to working, dealing with lousy and thieving employees, lousy and thieving customers, what health care is going to cost in the future and whether you’ll be forced by the government to pay for your employees’ healthcare, saving for retirement yourself with no company match other than out of your own revenues, the risk of lawsuits, extortion, threats, paying for your own long term care insurance, the impact on your family and basically never being able to take a vacation without constantly dealing with disasters and inept employees on the cell phone the whole week.

You’re always reading about these great startups and how some guy thought of making goofy shapes out of rubber bands and now he’s rich, or the mom who thought up sticking things in Crocs or how Facebook was founded. You read about these stories because they are so exceptional and spectacular. They are rare. And they are not representative of the typical small business owner in America. Typically, this venture entails significant risk, time, frustration, disappointment and is often not all it’s cracked up to be.

Often times, you hear stories of successful landlords. They’ve done well over the past few decades given the runup in housing. But you also hear a lot about the tenant from hell. There’s no free ride as a biz owner.

Agreed! In my experience it usually starts with “I want to open a little store selling….”, it turns into huge amounts of debt, stress, divorce, etc. down the road. With proper planning and having the right people around you, (those that aren’t afraid to be completely honest with you), your dream of owning your own business can become a successful reality, but few are patient enough to walk it out.

And the other option is… what? Working for someone else. How’s the secure career with increased salary going for ya? For most people working as an employee isn’t too hot either.

Each has their plus and minuses.

Owning your own business in some ways is more secure than working for someone else. At least if the business declines you can layoff others before your butt is on the line. Is owning a business all roses? No far from it, but in retrospect would still prefer the route of owning my own biz.

Though I can say the current admin is doing everything possible to thwart small biz from growing (if on purpose or not is another issue)

It’s just that pop culture already demonizes working for “the man” and glorifies the successful small biz lifestyle. And it’s often a miserable life. On the flipside, I pay very little for healthcare, I get a relatively predictable bonus, salary, raises, stock options to boot. And (usually) I’m not getting calls at night and weekends due to incompetent workers like the small biz owner deals with.

I guess it depends on how you define wealthy. The average Goldman Sachs employee makes over $500K. They’re all working for someone else. You can pretty easily make $200K or more by being a top 1000 employee in a Fortune 1000 company – that’s over a million Americans. I have friends that are lawyers, medical device salesmen, mutual fund salesmen, accountants, marketing directors and all sorts of other professions that are making probably $150K-$300K each in their 30s. By their 50s, probably double that. Isn’t that wealthy? I guess it depends on your perspective, but many people are perfectly happy being in the top 5% earners within America as opposed to perhaps the top 1%.

Even working for yourself, you technically are working for someone else. You are always working for the “man”. In a biz owner it’s your clients. Anyone who starts a biz quickly realizes this.

As you well know owning your own business has many more ways to shelter income and legally reduce your taxes. A high income salary employee pretty much has none. What I net in take home pay would require me at least have double a traditional salary. So a high income is great on paper and looks impressive, it really doesn’t mean much. It’s not what you make, it’s what you get to keep. Especially now though with the government vilifying the $250k and above you are pretty much screwed. In states like yours (NJ) and mine (NY) $250k and higher equals close to a 50% tax rate.

I agree though, people are best to run a side biz, at least get a taste to see if it’s for them.

What I would recommend for a family is have one spouse work for a corporation, while the other owns their own biz. You can get the best of both worlds. Some of the benefits of a large corp, while you get the tax shelters, income flexibility, and time flexibility, available as a biz owner. This is what my wife and I do and it’s works out great.

When people are free to choose who provides their services in a free market, the entrepreneurs are forced to deliver. If the customer isn’t happy, they will simply go elsewhere. In this sense, the customer truly is right.

The local entrepreneur is a real hero. Many people think that owning a business is just about screwing the government over and becoming rich, but it doesn’t necessarily work out that way (and oftentimes, the “screwing over” is only possible because of ill-advised credits and distortions in the first place). Thanks for sharing this.

Granted there are headaches with owning a small biz, but to me the benefits far outweigh the negatives. There are two huge benefits for me: a) Freedom & flexibility of schedule, which allows me more time with my wife and kids; and b) I (mainly) control my own income – of course with the economy things aren’t the same, but to a large degree what I do determines my output.

I think much depends on the business you’re in of course as well. If you don’t have to rely on idiots, deal with the public, and the money’s good, who would complain? But for every one of these “attractive” small business lifestyles there are several miserable business owner lifestyles to endure.

I agree, there can certainly be headaches with starting your own business. However, the type of business you choose will drastically impact your stress level.

I suggest looking for a business without inventory (and related costs), without non-salaried employees (which are a challenge to manage….or no employees at all), and without a physical infrastructure (more costs).

This rules out a lot of franchises and manual labor, but leaves the door open for consulting services, drop-ship services and other Internet businesses.

The easy money’s been made in a lot of these low effort/low inventory type businesses though – all these work-from-home outfits and internet businesses – with such a desirable income/lifestyle, the market’s becoming crowded quickly, so I assume a typical entrepreneur with no experience in that arena has very little chance of success.

I agree with Darwin. I live a good upper middle class life. Cheap insurance, great salary. Work from home paid vacation no stress. Able to afford an international trip every year and pay cash. No debt no life. However a have a side income. I get the best of both worlds. If I depended on solely my business my family will be in trouble

Well keep in mind any thing that’s “easy” and cheap for you to start up it’s also for someone else. While it’s great to do as a part time biz, the issue is there isn’t a large moat that makes it difficult for other’s to get into that same biz. That biz then is very price sensitive and compete more on price than service or features.